Outsourcing – The Pros and Cons!

In my lastblogI talked about why outsourcing can be good for organisations and the benefits that can be derived from outsourcing.

Outsourcing is not a four letter word (11 to be precise but who is counting)

What is often overlooked or never written about are the disadvantages or pitfalls that companies fall into when considering outsourcing!

It is important to point out that these pitfalls can be avoided if you plan and manage the process. When it does go wrong and believe you me it can, outsourcing is then tarred with a brush such as ‘it doesn’t work’, ‘we tried it, it failed’, ‘it was a disaster, never again’.

If there isn’t a clearly defined set of objectives then don’t be surprised when it fails.

Think of it as inviting a domestic goddess into your house to help with your cleaning, if you don’t give her clear instructions on what it is specifically you want doing she will most likely assume what you think you need and both of you then wonder why you are disappointed with the results.

The concerns about outsourcing anything from your payroll printing to a whole department are based on trust and whether the incumbent supplier will deliver the intended outcomes.

It’s pyschological!

Considerations are “does the cost outweigh any benefit after all, you could/should be doing it!”

A compelling argument but imagine the time you gain by finding the right partner to manage the outsourcing process for you? TIME is money and if a part of the business process or function is broken then in reality it’s probably costing the business a whole lot more!

Its true that businesses are wary of outsourcing and recent figures from research conducted by the National Outsourcing Association revealed that “80% of the general public do not believe that outsourcing helps the British economy, with only 19% believing that outsourcing can help get the UK out of recession.

An alarming 22% of people dislike the process of outsourcing despite us paying £21 billion in income tax every year.

Perceptions of outsourcing centre on cost-cutting, job losses and offshoring and onshore outsourcing.

There is huge concern for the organisation that is handing over a primary business process(es) and/or functions to a third party perpetuating the myth you feel out of control of the process and bereft of what is going on.

The purpose of outsourcing is to allow the proper use of internal resources. For example if you are printing and fulfilling orders in house, your employees are doing busy work not business. Imagine how the business focus would change when it has more time to think up new ideas, invest in creativity freeing up employees for more meaningful mission driven work all of which help fuel those ideas to fruition.

But what do organisations concern themselves with when they think of outsourcing?

These challenges tend to centre on:-

service levels not meeting expectations

data integrity and confidentiality worries

the contract being too inflexible to allow for change in growth patterns of the company

management changes at the outsource company creating friction and uncertainty

the outsourcing company going out of business or changing/discontinuing the provision of the services originally hired for

failure to provide the necessary resource in your company to manage the success of the outsourced business process

can the process be shared by 2-3 partners rather than giving it to one supplier

When considering outsourcing it is always worth having a contingency plan should a problem arise for example could you bring it back in-house for a short period, do you have an alternate service vendor? This is a double-edged sword because outsourcing by its very nature assumes that the company you choose to partner with will never give you cause for worry.

However, outsourcing should include extensive research, selection and recruitment of the right provider for your proposed business function. But things do happen, events intervene, companies change management, companies get bought out, companies go bust!

Unforeseen problems can arise when “force majeure” intervenes or you have not planned and managed the process as outlined here!

How do you avoid the pitfalls!

Let me start by saying “outsourcing is about creating a successful partnership” much like a marriage as I have previously alluded. In 90% of failed outsourcing processes this was the fundamental component missing! (Based on DPM statistics) It is no good you choosing to make a commercial decision to outsource a component and handing it lock stock and barrel with no active involvement or development of the relationship.

Regular communication is pivotal to any business relationship, an example of that is marriage if you don’t communicate it can quickly break down leading to misunderstandings and mistrust!

How do you find the right partner/supplier?

Ask yourself the following:

Does the service provider have a track record of service?

How does it manage service levels and expectations?

Is the business expanding?

How good are the service level agreements it provides?

How will the relationship be managed?

Will there will an account manager?

Who are the providers existing customers?

What are the strengths and weaknesses of the provider?

How do they manage problems?

Visit each supplier and ask questions about the processes

How secure are their IT systems? Is data integrity (if relevant) conform to UK standards i.e. Data Protection, ISO 27001

Can they demonstrate good quality assurance management systems?

Are they financially stable? How long have they been trading? (Don’t be mesmerised by the scale of the turnover its more important they have a proven track record in delivery)

Ask the service provider if they plan to subcontract the work out and carry out the same checks

Do they really know and understand their industry sector?

Finally?

Question your assumptions about outsourcing, this can be a good thing for the business and the employees it also means you are thinking through the process logically. Trusting someone else to manage the process doesn’t mean you have to let staff go it is simply a matter of redistributing human resources.

You can do all the necessary checking, set up a tender process and visit the select few. But there is nothing like good old fashioned gut instinct if it feels right it probably is.

Don’t be afraid to ask if you can trial the service for 1-3 months to get the “experience” (subject to type of business function) although there may be some initial setting up/running charges for the trial it’s worth asking for. If the service is of high value over a long period you may even be able to trial the process free before you make your final decision!

One more thing, whether the value of the process you are outsourcing is £5K or £50,000,000 the above steps still apply!

What do you think? Can you share an outsourcing story that went horribly wrong or was it the best thing you ever did?

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